Five months is no time to assess a new regime. And so, the fact that the new chairman of the Securities and Exchange Board of India is all of five months into the job should ideally deter critics from launching into him just yet. But well wishers of GN Bajpai would surely have told him that despite the fact that he comes into the regulatory body with an excellent track record at Life Insurance Corporation, investor memory is woefully short when it comes to the stock markets. It takes just one scam of moderate proportions to wipe out all the good work one may have done. Mr Bajpai?s predecessor, DR Mehta, probably realised this a little late in the day.
At a time when the global markets and the corporate sector have been shaken by a series of shocking disclosures about accounting and market misdemeanours by some of the world?s biggest corporates, Sebi will have its task cut out in its bid to ensure that such practices don?t afflict Indian corporates and, in turn, create havoc in the markets here. Mr Bajpai has rightly begun focusing on the issue of ethics in business ? a kind of ?corporate governance plus? approach to best practices. As the market regulator, Sebi has the most important role: to ensure that corporates follow the highest practices in the best interests of shareholders. And that the punishment for unethical practices which affect shareholders is tough enough to deter others. But in order to do that, Sebi has to first ensure its own house is in order and the integrity of its officials is beyond question. If Sebi seeks expert advice in the form of committees which advise it, the regulator must also ensure the members of such committees are so chosen that no one can question the recommendations which they eventually put forward. While the members serve on the panels, they should ideally not be allowed to carry on their private practices. And if they don?t agree to set the standards themselves, Sebi must make it clear to them that it can do without such ?experts?. Sebi?s top brass must also meet the corporate bosses to explain to them the kind of ethical standards which the Indian market now expects and what Sebi requires them to do. It?s a long haul, but it?s essential that Sebi begins the exercise right now.
No amount of lecturing on ethics will be successful, however, unless the ground-level authorities which monitor various market players ? the self-regulatory organisations ? are themselves setting standards and are empowered enough to take the necessary steps to implement ethical standards. To that extent, whether it is the stock exchanges or the Association of Mutual Funds in India or Amfi, the market regulator needs to ensure that these are strong enough to enforce discipline among their members and at the same time have enough independence to dissent with Sebi if required. An SRO which always agrees with the regulator merely because Sebi?s the boss is not a good idea at all. Stock exchanges must ensure that brokers and corporates listed with them follow the standards set for them, whether they are the bye-laws of the exchange or the listing agreements. Towards that end, whatever needs to be done to strengthen these regulations will have to be undertaken swiftly by them. Equally, mutual funds, which deal with small investors and savers, must be made to follow the highest ethical standards by Amfi, under the aegis of the regulator.
But in all this, the importance of time-bound and conclusive investigations into unethical practices and market misdemeanours cannot be overemphasised. Sebi has become notorious for dragging its feet on investigations into scams which have rocked the markets and of putting out orders which have been overturned by the appellate authority. In its bid to enforce the highest ethical standards, prolonged investigations without any immediate outcome can prove to be the biggest hindrance. Probes need to be focused and completed in time with exemplary punishment for offenders. Mr Bajpai?s task will be to seek and get for his organisation such powers at the earliest which enable it to conclusively prove the offences. In sum, Sebi will have to send out the signal that ethics is not something to be debated in seminars or tick marked in checklists. It is to be internalised by every corporate, every intermediary and the regulator itself. Otherwise, the consequences can be severe. As the most developed markets in the world have begun realising in a rather shocking sort of way.